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2022 (4) TMI 1499 - AT - Income TaxTP Adjustment - Addition on account of export of goods - transaction of export of rice to AE was considered to be at arm s length price by the assessee - HELD THAT - It can be seen from the above chart that the transaction of export of rice undertaken by the assessee with its AE is within range of /- 5% of the ALP. It has been brought to our notice that in subsequent assessment years i.e. 2012 13 2013 14 and 2014 15 the TPO himself has accepted TNMM analysis undertaken by the assessee in bench-marking such transaction of export of rice. In fact in A.Y. 2011 12 the ld. CIT(A) vide order dated 08.03.2019 has deleted the adjustment made by the TPO by upholding the TNMM analysis. Bench-marking under TNMM done by the assessee mentioned elsewhere shows that the impugned transaction is at ALP and needs no adjustment. We accordingly direct the AO to delete the TP adjustment. Ground No. 8.2 is allowed. Addition on account of arm s length interest on loans to AEs - discarding the application of PLR of SBI on foreign currency denominate loan - HELD THAT - The Hon ble coordinate bench in the case of Everest Kanto Cylinder Limited 2015 (12) TMI 683 - ITAT MUMBAI for Assessment Year 2008-09 has also held that rate to be used for undertaking an adjustment should be LIBOR and not the average yield rates. We find that the LIBOR rate of interest was 5.124% whereas the interest charged by the assessee was 12% per annum. Therefore we are of the considered opinion that no TP adjustment is required on this transaction. Ground No. 8.3 is allowed. Receivables against expenses incurred on behalf of Nice International Inc and LT Overseas Inc. - While imputing interest rate of 17.26% the TPO has also applied the same on the receivables outstanding against routine expenses incurred by the assessee on behalf of its AE - HELD THAT - Facts on record show that the assessee has given advance to employees/directors travelling abroad and also facilitated payment of certain expenses on behalf of the AE. The said payment of expenses by the assessee were for a very short period of time and were adjusted against similar expenditure incurred by AE on behalf of the assessee. We are of the considered view that such payment of expenses are done under normal business circumstances during regular course of business and should not be considered as loan. Our view is fortified by the OECD guidelines - The Hon ble Supreme Court in the case of Bombay Steam Navigation Co. 1964 (10) TMI 12 - SUPREME COURT has held that every indebtness cannot be construed to have arisen out of loan transaction and interest is involved only in relation to a debt created out of loan transaction. Here is no dispute that the routine expenses incurred by the assessee in regular course of if its business are considered as loan and in light of ratio of laid down by the Hon ble Supreme Court supra read alongwith OECD guidelines supra we do not find any merit in such adjustments and the same are directed to be deleted. Interest on outstanding receivables - HELD THAT - As the contention of the assessee that no interest has been charged from non-AEs on similar delay cannot be brushed aside lightly. In fact in the case of Aura OI SAS delay was of 81 days and in the case of Sabi Foods delay was of 52 days and no interest was charged by the assessee. We have elsewhere mentioned the operating profit margin of the assessee vis a vis comparable companies from where it can be seen that the operating profit margin of the assessee is much higher than that of the comparable companies. Considering keeping in mind that no interest was charged from receivables from non-AES we are of the considered view that this adjustment is unwarranted and accordingly direct the Assessing Officer to delete the addition. Assessment u/s 153A - Denial of deduction u/s 80IB(11A) - HELD THAT - As in Assessment Year 2007-08 this issue has been decided on merits by this Tribunal 2020 (10) TMI 88 - ITAT DELHI in the case of L.T. Foods Ltd wherein on identical facts the Tribunal allowed deduction claimed u/s 80IB(11A). Disallowance made u/s 14A r.w.r 8D of the Rules - HELD THAT - We direct the Assessing Officer to delete the disallowance made u/s 14A of the Act qua the share of profit from partnership. Expenditure incurred on due diligence and advisory reports prior to acquisition of Kusha Inc - Disallowance of expenditure holding same as capital expenditure and not allowing deduction - HELD THAT - A perusal of the bifurcation of expenses shows that the expenses have been incurred on due diligence and advisory report conducted by the professional firms and on the basis of such report/analysis the assessee identified the target company Kusha Inc for acquisition to help expand export sales of the assessee in USA.Considering the fact that export sales of the assessee increased as per the chart mentioned elsewhere we are of the considered view that the expenditure was incurred to increase profitability and efficiency of the assessee s business overseas which was incurred in the normal course of business. We are of the considered view that the expenditure incurred on due diligence and advisory reports prior to acquisition of Kusha Inc deserves to be allowed as revenue expenditure. We accordingly direct the Assessing Officer to allow the same. Expenditure on not use the trademark - assessee stated that pursuant to the understanding entered into with Lucky House the impugned amount was treated as full and final settlement of the dispute and therefore the same is an allowable expenditure under section 37(1) - HELD THAT - There is no dispute that the impugned amount was paid as final settlement of the dispute which arose due to infringement of use of trademark Daawat. In our considered opinion any expenditure incurred by the assessee to protect its trademark in the ordinary course of business is to be allowed as revenue expenditure because it was a commercial expediency on the part of the assessee to have made the said payment to protect unlawful use of its trademark and the same was incurred wholly and exclusively for the purpose of business. We accordingly direct the Assessing Officer to allow deduction. Disallowance u/s 40(a)(ia) - TDS liability - freight and labour charges - HELD THAT - In so far as freight and labour charges are concerned the same are reimbursements and in our considered view there is no liability of TDS on reimbursement of expenses.We find that each payment is below the limit on which tax is not required to be deducted at source. Market development charges have been paid to a non-resident and since the non-resident does not have any PE in India its income is not taxable in India and therefore there is no liability for TDS. Rail freight has been paid to Container Corporation of India and section 194C of the Act does not apply on such payment.Facts on record show that similar disallowance made in Assessment Year 2007 08 was deleted by the ld. CIT(A) and the revenue did not prefer any further appeal. Steamer freight has been paid to NORASIA Container Lines Ltd which is a foreign shipping company to which section 172 of the Act applies and therefore there was no liability to deduct tax at source. In so far as commission and hotel accommodation charges are concerned the assessee did not claim this as expenditure and therefore there is no question of any disallowance. Job work charges were incurred towards purchase of powder used for fire extinguisher and since it is a purchase item there is no liability for TDS. Clearing and forwarding charges and bonus paid to farmer are confirmed. Legal and professional charges the same is set aside to the file of the AO. The assessee is directed to furnish details and demonstrate that the recipients have shown the income in their respective returns of income and the AO is directed to verify the same and decide the issue afresh. Expenses incurred for service charges AMC etc is also set aside to the file of the Assessing Officer with similar directions. There is no liability of TDS on such accounting error. With the above observation Ground with all sub- grounds is partly allowed.
Issues Involved:
1. Legality of the reference to special audit under section 142(2A). 2. Errors and jurisdictional issues in the special auditor's report. 3. Excessive and unjust additions made by the Assessing Officer (AO) under section 143(3)/144C. 4. Legality of the reference to Transfer Pricing Officer (TPO) and adjustments made under section 92CA(3). 5. Disallowance of deduction under section 80IB(11A). 6. Disallowance under section 14A read with Rule 8D. 7. Addition on account of personal expenses. 8. Disallowance of deduction of bad debts. 9. Disallowance under section 40(a)(ia) for non/short deduction of TDS. 10. Improper consideration of explanations and evidence by the AO. 11. Additions based on surmises and conjectures. 12. Wrongful charging of interest under sections 234A, 234B, 234C, and 234D. Detailed Analysis: 1. Legality of the Reference to Special Audit under Section 142(2A): The assessee contested the legality of the special audit under section 142(2A) and the jurisdiction of the special auditor. However, the assessee did not press this ground during the hearing, and thus, it was dismissed as not pressed. 2. Errors and Jurisdictional Issues in the Special Auditor's Report: Similar to the first issue, the assessee did not press this ground, leading to its dismissal. 3. Excessive and Unjust Additions by AO: The assessee argued that the AO made excessive and unjust additions. However, this ground was not pressed by the assessee and was dismissed. 4. Legality of Reference to TPO and Adjustments under Section 92CA(3): The assessee contested the reference to the TPO and the adjustments made. The Tribunal found that the TPO's adjustments were not in line with the amended provisions of section 92C(2). The Tribunal directed the AO to delete the TP adjustments, allowing the assessee’s grounds. 5. Disallowance of Deduction under Section 80IB(11A): The Tribunal found that the assessee's claim for deduction under section 80IB(11A) was valid, as it was allowed in previous years. The Tribunal directed the AO to allow the deduction, following the precedent set in earlier judgments. 6. Disallowance under Section 14A read with Rule 8D: The Tribunal noted that the share of profit from the partnership firm should not attract disallowance under section 14A, following earlier decisions. For other exempt income, the Tribunal found that the assessee had sufficient own funds, and thus, the interest expenditure disallowance was deleted. 7. Addition on Account of Personal Expenses: The Tribunal directed the AO to follow the directions of the Dispute Resolution Panel (DRP) regarding the verification of travel expenses of the directors' wives. Other personal expense additions were confirmed as not pressed by the assessee. 8. Disallowance of Deduction of Bad Debts: This ground was not pressed by the assessee and was dismissed. 9. Disallowance under Section 40(a)(ia) for Non/Short Deduction of TDS: The Tribunal found that certain reimbursements and payments were not liable for TDS. It directed the AO to verify and allow the expenses where applicable, following the principles laid out in earlier cases. 10. Improper Consideration of Explanations and Evidence by AO: The Tribunal directed the AO to properly consider the explanations and evidence provided by the assessee, particularly in light of the Tribunal’s findings on other grounds. 11. Additions Based on Surmises and Conjectures: The Tribunal found that many of the AO's additions were based on incorrect assumptions and directed the AO to delete such additions. 12. Wrongful Charging of Interest under Sections 234A, 234B, 234C, and 234D: The Tribunal directed the AO to verify the facts regarding the delay in filing returns and the payment of advance tax, and to charge interest accordingly. Conclusion: The appeals were partly allowed, with significant relief granted to the assessee on various grounds, particularly regarding TP adjustments, deductions under section 80IB(11A), and disallowances under section 14A. The Tribunal emphasized the need for the AO to follow proper procedures and consider all evidence and explanations provided by the assessee.
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